By DNV LNG-blog
By
For a long time, there has been anticipation of reform of Chinese natural gas prices, and this summer, at least some of it was put into action: Beijing raised prices for non-residential consumers to 8,90 USD/mmbtu. Notice the keyword:non-residential.
Residential consumers are off the hook, they still get super cheap gas.
But there is another caveat; existing supply is not effected by the “reform”. For new supply on the other hand, the price will be set at 85% of the average of imported fuel oil and LPG. That means existing supply will be around 7.5 USD/mmbtu as before, while new supply will be around 15 USD/mmbtu. That’s a few more bureaucrat jobs to manage who sells and who buys what priced gas.
There seems to be at least two good reasons why China wants to hike its domestic natural gas prices: First, a higher price will give incentives for increasing domestic production, particularly from shale reserves. Second, a higher price will reduce losses on natural gas imports. Yes, even for Chinese NOCs it is costly in the long run to buy something at 18 dollars and sell it at 7.5 dollars. In the first half of 2013, PetroChina has already lost 23.4 billion yuan on gas imports.
What I’d really like to see is a complete deregulation of gas markets all over Asia. That being unrealistic, the ongoing reform in China is definitely good news. But if Beijing really wants a complete switch to alternative-based pricing, they need to step up the pace. Because increasing from 7.5 to 8.9 for only a small market segment doesn’t exactly cause the market to shake. I expect more from Beijing.
A small step by small step reform